Guide to Sole Proprietorship in Indonesia
The Advantages and Disadvantages of a Sole Proprietorship
A sole proprietorship in Indonesia is also referred to as a sole trader or Perusahaan Perorangan. Only one person owns the company, making this the simplest entity option.
Why Choose a Sole Proprietorship?
If you want to set up a business as quickly as possible and you don’t have any intention to have partners, this could be the option for you. Sole proprietorships have no statutory provisions or special requirements governing the setup. With minimal legal restrictions, sole proprietorships are easy to establish and easy to dissolve if needed.
Characteristics of Sole Proprietorship
- Relatively easy to set up and also dissolve.
- Liability is unlimited and can involve personal property.
- There are no taxes, there are levies and fees.
- All benefits are enjoyed alone.
- Difficult to regulate the company’s wheels because it is regulated by yourself.
- Small profits that sometimes have to sacrifice a larger income.
- The period of business entity is unlimited or for life.
- At any time, it can be transferred.
Sole Proprietorship is divided into:
Licensed Sole Proprietorship
Have an operational permit from the technical department. For example, if an individual company is engaged in trade, it can have licenses such as the Trade Business Registration Certificate (TDUP), the Business Trading License (SIUP).
Unlicensed Sole Proprietorship
For example, individual businesses carried out by street vendors, grocery stores, etc.
As the sole owner, you get to decide how much minimum capital to put up. If you have a smaller capital to start with, this could be the ideal option for you. The advantage of this entity includes:
- Ease of ownership transfer whenever you need.
- You get to enjoy all the benefits and the profits.
- You have full control over how your business is run.
- The start-up cost can be relatively low.
- An unrivalled level of privacy since you get to keep all information pertaining to your business.
What About the Disadvantages?
No business entity is without its risks. A sole proprietorship is no exception. The disadvantages include:
- Your profits are smaller.
- You are personally liable for the debt and losses incurred (if any).
- There is no safety net and no health insurance.
- You risk losing your investments if the business fails.
- As the sole owner, you are at risk of injury liability, where your injuries mean the business might not be able to operate.
- Possible lost opportunities if you cannot spare the time and effort since you are the only one running your business.
How Do I Set Up a Sole Proprietorship?
To establish your business, you will need the following documents:
- The registered name of your business.
- Your Employer Identification Number (all entrepreneurs must register for one as a sole proprietor).
- Get your name trademarked to safeguard your business.
- Apply for any necessary business licenses needed.
What Happens After Setting Up a Sole Proprietorship in Indonesia?
Once you’ve set up your business, you need to identify your target audience. You would then need to figure out the best way to reach them. Identify the services or products that you can provide or sell and offer incentives for customers to engage your services or buy the products from your business.
Differences Between Sole Proprietorship and Limited Liability Company (PT)
|Differences||Sole Proprietorship||Limited Liability Company (PT)|
|Ownership||Individual||Minimum 2 shareholders|
|Legal entity status||Not a legal entity||Legal entity|
|Responsibility||Unlimited, to personal property||Limited, limited to paid-up capital / limited shares owned|
|Owner and management functions||The owner generally is the party that takes care of the running of the business||There is a separation of functions between shareholders and management/directors|
Want to Set Up a Sole Proprietorship in Indonesia?
3E Accounting can help. We listen to what your business needs are and provide unbeatable tailor-made solutions. We put the success of your company as our priority. Tap into our expertise for your business advantage and let us help you find your success in Indonesia. For more information about our range of services, contact our team today.